It’s expected to be one of the worst selling seasons in years — and one of the most pared down in terms of inventory.

Retailers and analysts say holiday 2008 marks the first time in this economic downturn where the merchants have been practically religious in the merchandise planning, getting the buy in line with slumping sales trends and tuning in to the mind-set of consumers after grappling with surpluses through the spring and summer.

Across the retail landscape for holiday, “we see 5 to 10 percent inventory reductions on a per-square-foot basis,” said Marie Driscoll, retail equity analyst for Standard & Poor’s.

“The consumer, based on the confidence numbers, is much more pessimistic,” Driscoll said. “Their income is constrained, and retailers are managing with less inventory investment, trying to mitigate the risk.”

The inventory reductions don’t necessarily translate to sales drops of the same magnitude, she explained. Retailers could be betting that less inventory means getting stuck with fewer goods as the season progresses and, therefore, fewer markdowns.

Last year, total holiday sales in the U.S. rose just 3 percent to $469.9 billion, according to the National Retail Federation. The season started out well, but then fizzled. Holiday sales are expected to be even worse this year, given the poor economy.

“Business is bad, unless you are Wal-Mart or Costco,” said one retail chief executive who requested anonymity. “For the mid- to upper tiers, business is really tough. There are parents out there who want to buy gifts for their children, but don’t have the money.”

The source called the retail climate one of the worst in 40 years.

Macy’s chairman, chief executive and president, Terry Lundgren, was more positive about holiday, even though the midtier is expected to be the most challenged, as it has been this year so far. “While I am not an economist, I think there is going to be a lot of pent-up demand in the fourth quarter,” predicted Lundgren. “I do believe there will be spending done by our consumer. My view is that the holiday period is where Macy’s consistently shines.”

Lundgren sees Macy’s getting a lift from its 150th anniversary celebration in October. “It should give us momentum” going into the fourth quarter. “We have a lot of vendor celebrations wrapped around that, to keep the hype and excitement going.”

Lundgren also singled out the Macy’s Thanksgiving Day Parade and new and exclusive merchandise programs with Tommy Hilfiger and FAO Schwarz as potential revenue drivers. The retailer is forecasting sales growth of minus-1 percent to plus-1.5 percent for the year, but hasn’t issued a specific forecast for the fourth quarter.

While honing their operations, retailers are glamming the holiday goods up with details, jewel tones, crystals and younger, contemporary styles with the party spirit, in hopes of putting a nation full of depressed consumers in a better shopping mood.

In the holiday merchandise previews retailers unveiled earlier this month, there was an increased emphasis on exclusives, and showing what fashion executives repeatedly cited as their “unexpected” offerings, whether it was a $5,000 electric Vespa scooter on saks.com; Henri Bendel’s mini Lego speakers for iPods, priced at $11, or, at Gap Inc., prints on prints, brighter colors and texture combinations for a quirkier appeal. As Jose Abellar, vice president of design at Gap’s Old Navy division, said: “Mismatching is in.” Basics, primary colors and reindeer patterns are out.

Then there’s the ongoing shift — seen in the last few holiday seasons — to nonfashion “giftable” items. This means less ready-to-wear and more tabletop, crystal and electronics, though not so much those of the high-ticket variety, which haven’t been selling well — at least at department and similar stores.

Retailers are “a bit more surgical” in their holiday ordering, said Scott Schramm, senior vice president and general merchandise manager for Henri Bendel, in describing the approach for the season. “We are looking at every single item critically.”

One bright spot, according to S&P’s Driscoll, is likely to be accessories, although the outlook isn’t good for apparel. “Apparel is usually something you self-purchase and for holiday. In the kind of macro backdrop we are expecting, there might not be as much self-purchasing. Apparel has become a commodity and accessories refresh the way you look. The margins are better. There’s a longer life cycle and less fashion risk,” said Driscoll.

However, sweaters will still be big. “There’s a strong focus on knitwear and sweaters, whether you are talking about sweater coats, fashion cashmeres or printed sweaters,” said Susan Davidson, president of Creative Design Studio, which designs and wholesales fashion to Lord & Taylor and other stores.

Last year, some discounters were very aggressive with their price promotions early on and got the jump on the season. “Not everyone fell in line,” said Jay McIntosh, director of consumer products at Ernst & Young. “But this season, many will open before Thanksgiving with Christmas-type promotions early in November, and will be very aggressive with pricing. Some retailers may decide that they are going to focus on carrying a smaller assortment this year and might not want to take a price-cutting strategy. The risk is they may not get the volume….By Black Friday, it will be very promotional across the board.”

He recommended that retailers find new ways to sell a greater number of gift cards, since consumers who receive them tend to be less price sensitive. He also suggested selling products relating to travel experiences and causes, such as the green movement. “Micro-marketing is critical. Otherwise you are competing too much with the big discounters, which is difficult,” said McIntosh.

His recommendation for how to weather holiday 2008: “Moderate inventories, go in early in the season with aggressive pricing and realize margins could be thinner, but maybe you [gain] some market share.”

Bendel’s is paying more attention to the price zones in which it does best at holiday time, based on last year’s results, and merchandising accordingly. Schramm said the mood of the holiday assortment is “opulent….We are feeling very good about stones and jewels. They generally make people smile. Last year was a little bit more about shine and sparkle.”

Bendel’s also is emphasizing private label handbags, jewelry, home fragrances and small leather goods, many of which were tested last holiday. “We are very encouraged. The consumer has got to the point where she doesn’t want to see herself coming and going,” Schramm said.

At the other end of the retail spectrum, at Sears Holdings, “there’s a lot more fashion in our holiday assortments, but still at good value. We really thought about providing the unexpected,” said Lisa Schultz, executive vice president of apparel design.

She spoke of “exaggerated details,” unusual embellishments, chunky stones and sequins as those features shaping the assortment. “It’s more upbeat and colorful. In this kind of economy, you want people to get excited about what they are buying. They do not want to buy what they have already. In our older brands, we have really modernized the assortment, and [are] getting more contemporary and relevant. Even a basic has a modern twist.”

Stephanie Solomon, vice president and fashion director of Bloomingdale’s, said, “We are supporting ‘the look’ of real diamonds and gems, and that makes it fun and glamorous and helps people feel rich. You are on a fantasy…and we have many more exclusives.”

In cashmere, a Christmas staple at Bloomingdale’s and most other stores, “there is more novelty and interesting details with buttons, pockets and tie-dyes,” Solomon said. She also singled out lace as important.

Does the poor economy affect the look of holiday goods? “In a subliminal way, yes, it has had an impact,” Solomon replied. But there’s been no reduction in the pricing, she stressed.

Saks Fifth Avenue is breaking beyond fashion with a dot-com offering that includes Peter Luger steaks, Dylan’s Candy Bar treats, exclusive Prada accessories and bright-colored totes from Nancy Gonzalez, Carlos Falchi and Valentino. There are also USB memory keys from Philips for $180 with Swarovski elements, and exclusive Ralph Lauren cable-knit and plain cashmere sweaters for up to $698. In addition, the store has a new look to its snowflake-pattern packaging, which is done in calligraphy style by Marian Bantjes.

J. Crew’s holiday collection is “a little bit more skewed. Last year, we had a really large assortment,” said Jenna Lyons, creative director. “It was more ‘buy-for-yourself’” and filled with classic tartans and plaids. The switch this year is to “easy, pick-up things, like a lot of accessories, and gold and shimmery things that make you feel happy and festive….The kind of things you don’t have to put in the back of your closet until next year.”

At J. Jill, “it’s a more focused assortment. We’ve honed in on sweaters — not as huge of an assortment, but with points of difference with small details,” said Andrew Shannon, vice president and creative director, singling out a turtleneck with a drop sleeve. “Last year, we were overassorted,” Shannon noted.

The retailer is emphasizing tonal dressing, espresso and mushroom colors and clothes that are versatile and “timeless,” company executives said. A jacket, for example, can be worn with a career trouser, or a more casual bottom, to suit the occasion. “Laid-back luxe” is how the company referred to the spirit of the collection. “It’s an uncomplicated collection, but with the right amount of details,” Shannon added. Key items include an A-line jacket with back pleat in washed satin for $119, cable cardigans at $119 and tunics with detailing down the sleeve for $79.

At Old Navy, “the color expression is a little more optimistic and forward, whereas before it was a little too traditional,” said Abellar. “Color has more of a fashion language. We’re mixing a lot of patterns. There’s no fear of color. We’re putting stripes together, lots of cables and ribs — just texture throughout. We have the most sweaters in years — it’s a huge sweater season.”

Old Navy plays with texture, for example, by pairing a tweed coat with a striped ribbed turtleneck, and gets more colorful by showing pinks, oranges, blues and purples, instead of the traditional holiday reds and greens.

A big change at Gap is evident at GapBody. “We have moved away from a collegiate attitude to a soft, sexy statement,” said Gap designer Patrick Robinson. “Most people haven’t ever talked about Gap as sexy.” Gap, overall, he added, is still “about classics and the details that make it exciting.”�